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Wednesday, May 12, 2010

"I think at this point it should be very clear"

(The title and accompanying picture refer to events in Episode 13, Season 3 of "Mad Men", one of precious few Television shows worth watching)

Real Estate prices "correcting" in China. The cash flows that support these purchases and investments rely on export volume, which has slowed. It has been exacerbated by central planning and the inability of the CPC to adjust to changing economic decisions. Instead, China opted for the Khyber Pass strategy...simply throw more resources at the same strategy and hope it works. And so Chinese banks abandoned any semblance of prudent risk management and loaned ever greater amounts to industrial companies in the hopes that the world would wake up and import even more Chinese goods.

You see, dear reader, this is why the "alarm bells" going off in the popular press that "China has decreased Treasury purchases!, America is doomed" was always so silly. The financial press should have looked deeper: The reason China has levelled off its purchases is because it is receiving less American currency from purchases. Very few people understood how crucial American purchases were to the Chinese economy given just how thin profit margins were. "Making it up on volume" only works if you have the volume.

On the other side, Yuan is plentiful given the deluge of State-Directed Bank loans. How to put that Yuan-denominated capital to use? What assets were to be bought or built? The below article spells it out.

We've been waiting for tightening measures to hit the Beijing property market, especially after the city's real estate association itself said the situation was a bubble.

It looks like the government's clampdown is starting to bite, hard. Average Beijing transaction prices collapsed 31% month on month:

Capital Vue:

The average transaction price of commercial residential properties in Beijing for the week ended May 9 fell 1,790 yuan per square meter or 9.6 percent week-on-week to 16,898 yuan per square meter, reports The Beijing News, citing statistics released by Beijing Real Estate Information Network.